A Growing Industry

As discussed previously, the relationship between the alcohol business and the nascent legal cannabis business is challenging. On the one hand, some within the alcohol industry are concerned (perhaps with good reason) that legalized cannabis will cannibalize sales. And so for that reason a decent amount of the lobbying dollars that have been spent in Washington, D.C. to oppose federal legalization of cannabis have come from hooch companies trying to protect their turf.

On the other hand, there are some people within both industries who are seeking to collaborate. This week brought news of just such another combination. Specifically, Molson Coors Canada announced yesterday that it is forming a joint venture with The Hydropothecary Corporation – a publicly traded business currently operating within the legal cannabis market in Canada. As described by the companies, the purpose of the JV will be to “combine the proven beverage experience of Canada’s leading brewer with a recognized innovator in the fast-growing cannabis sector to explore the highly anticipated consumable cannabis market, which is expected to be legally permissible in Canada in 2019.”

This new venture is significant for a number of reasons. First, it should be noted that Molson Coors Brewing Company – the parent corporation for Molson Coors Canada – is publicly traded in the United States. So this venture, like Constellation Brands’ announcement last fall of its investment in Canadian cannabis company Canopy Growth, represents a major company, with all the baggage associated with accessing the public markets in the United States, making an investment in a business that is doing something in Canada which would be illegal if it were done in the United States. That is a level of risk tolerance that most large U.S. public companies might find challenging. Particularly when you consider that Molson will have a majority stake in the JV.

Second, the Canadian market for cannabis or alcohol – or basically anything other than poutine – is relatively small when compared to the U.S. market for that same item. By most accounts, the cannabis market for all of Canada will be smaller than the adult-use market for cannabis in California alone. So Molson Coors’ investment isn’t likely to move the needle much in terms of the consolidated companies’ overall financial results.

But – and this is the third point – it seems likely that the real reason that Molson Coors would make this investment now is because they, like Constellation and others in the beverage space that are seeking to partner with cannabis companies, are anticipating that the federal barriers to cannabis use in the United States will – at some point in the not too distant future – fall away. If that happens, and Molson Coors and similarly situated companies were to wait for it to happen before they gain knowledge of the industry, products ready to launch, etc., then they run the risk of missing out on a huge market opportunity. So to a certain extent, yesterday’s announcement feels driven at least as much by FOMO as anything else.

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Published by Brian B. DeFoe

A business lawyer with an emphasis on assisting clients in consumer-facing industries, especially hospitality and retail. I have a keen appreciation for spirits, especially single-malt scotch whiskies (the peatier the better, please) and robust bourbons.
I live on Bainbridge Island, Washington with my wife, three sons and an ever changing menagerie. My practice is based out of Seattle.
View all posts by Brian B. DeFoe